The current brouhaha between the US government and Chinese tech giant, Huawei, could be taking a new twist and getting more interesting. Recent report suggests that the Chinese government could get itself involved. Recall that the US government recently banned the sales of Huawei and ZTE (both Chinese companies) products in the US and it has also taken numerous measures to ensure that no product or Hardware from these companies is used by US companies. In a separate issue, ZTE cant use American products for the next seven years, this implies that ZTE phones cant sport a Qualcomm chip or run Google’s Android. The Chinese government has been relatively silent as these issues brews but not anymore. Before we discuss the Chinese government involvement, let’s take a look at the largest US company performance in China – of course, its Apple.
Apple’s Performance In China
At Apple’s recent earnings conference in February, CEO Tim Cook stated that as of the end of December’s first fiscal quarter, the company’s revenue in mainland China hit a record high. A key part of Apple’s revenue was the iPhone at the time, but sales of Apple’s iPads, Macs, and smartwatches also grew during the same period. Cook also said that the company’s data shows that among the wealthier Chinese cities, the top five smartphone sales in the last quarter of last year were all iPhones, just like in the United States. Last year, Apple’s revenue in Greater China (including China, Taiwan, Hong Kong, and Macau) reached $46 Billion, which is roughly half of its U.S. business and accounted for 19% of Apple’s total sales in 2017. Counterpoint’s data shows that Apple currently holds 11% of the Chinese smartphone market, while Huawei holds a market share of 19%. Cook added: “When I look at the sales figures in these areas, I feel we are doing very well in the Chinese market.”
Chinese Government Involvement
Information hitting the rumor mill suggests that the Chinese government is currently considering an option to ban the sales of all Apple’s products in the country citing “national security”. However, if the Chinese government decides to prohibit the sale of Apple products for reasons of national security, in order to retaliate against the US ban on Huawei and ZTE products, there would be huge implications on the company’s performance
Implication Of A Possible Ban On Apple Products
Apple may suddenly lose 19% of its revenue and cannot enter the world’s largest consumer market. Apple’s market value will also be greatly reduced and may be forced to cut 10% to 20% of the staff, which means that up to 27,000 people will be laid off. Moreover, judging from the current level of trade relations between China and the United States, we do not see any harm in China’s ban on Apple products. Because no one Chinese company’s business scale in the United States is equal to Apple’s business in China, it may become the goal of the Trump administration. Four years ago, China had already prohibited government agencies from purchasing Apple products on the grounds of national security. It is not difficult to extend this ban to other groups.
No doubt, China is the largest smartphone market in the world and Huawei is likely to gain most of the $46 billion market that Apple has lost because Huawei’s high-end series (P series and Mate series) are fully compatible with Apple’s high-priced devices (iPhone 7, iPhone 8 and iPhone X). Huawei’s smartphone business may double in size overnight!. Last year, Huawei’s consumer business (including smartphone business) generated revenue of nearly $38 billion, and its smartphone shipments reached 153 million, an increase of 43.6% from the previous year. By prohibiting the sale of Apple products, China will immediately have the world’s largest smartphone manufacturer.
However, we can be sure that the likes of Samsung, Xiaomi, Oneplus, OPPO, Vivo, and Meizu are strictly monitoring the situation and should the Chinese government initiate a clamp down on Apple’s products, these companies will give Huawei a good fight for Apple’s $46 billion market. How will these issues end? Drop your thoughts in the comment below